Fundamentals of Taxation 2011 4th Edition by Ana Cruz, Debra Prendergast, Dan Schisler, Michael Deschamps

Exercise 3

Maggie and Davis are equal partners in a partnership. When forming the partnership, Davis contributed a building with a FMV of $550,000 and a basis of $175,000. During the first year of operations, the partnership earned $170,000 in ordinary income and tax-exempt interest of $2,500. Assuming no special allocations, Davis's basis in the partnership interest at the end of the year is: a. $175,000.
B) $261,250.
C) $345,600.
D) $347,500.